Deregulation: Smarter, not smaller, government

New Indian Express

25-04-2025

Deregulation has become a new buzzword that one hears often these days with the coming in of the department of government efficiency in the US and Javier Milei in Argentina. In the Indian context, it has been mentioned in the Economic Survey. The term conjures images of slashed budgets, closed offices and a freeze on hiring. For many, it's synonymous with shrinking the state.
But this narrow view misses the more nuanced purpose of deregulation—which is enhancing the efficiency of government. And that isn't always about firing people or slashing budgets and regulations. In many cases, it's about hiring the appropriate manpower, be it for capacity or to rethink processes. A key aspect driving these decisions is ensuring that taxpayer money delivers real value.
At its core, deregulation seeks to strip away unnecessary rules and red tape that bog down government efficiency. The goal isn't simply a smaller government—it's a smarter and more efficient one. It's an enabler of economic activity.
Take the example of the Indian Patent office, where, until very recently, it used to take years to process applications. It was primarily due to two reasons—understaffing and complicated or outdated procedures, with the former being the bigger roadblock. In a 2022 working paper, Sanjeev Sanyal and Akanksha Arora—'
Why India needs to invest in its IPR ecosystem
'—documented the level of understaffing in the patent office and the problems it was creating. Even after increasing manpower, we had only about 800 people in the office. Compare this with 8,125 in the US and 13,804 in China. Naturally, it took years to process the applications.
In this case, any improvement could not happen without strategically investing in hiring more manpower, and on IT infrastructure and systems. The government has, in recent times, hired about 500 more people and plans to hire another 500. This was supplemented with improvement in processes. This is an example of a sector where efficiency doesn't come from cuts in budgets or manpower; rather, it requires increase in both.
Similarly, the Food Safety and Standards Authority of India has been in the news for an acute staff shortage at all levels. To make matter worse, a large part of those working now were hired on contracts or on part-time basis. It must be noted that such a situation arose despite the government sanctioning 493 additional posts for the FSSAI in 2018. Can we expect the body to ensure and enforce food safety standards in the most populous country while it lacks adequate working hands? The only way is to hire more people. There are various other sectors where this holds true as well.
Critics might argue that hiring more staff contradicts the ethos of deregulation, which they see with a narrow lens of downsizing government in all aspects. But that's a misreading. Deregulation isn't about ideology; it's about pragmatism. A government that can't enforce its own rules effectively—whether due to overregulation or understaffing—fails its citizens just as surely as the one that overreaches. Deregulation isn't about firing vs hiring—it's about what works. The catch is in the execution.
Karthik Murlidharan, in his book
Accelerating India's Development
, gives another interesting example. India's anganwadi centres are staffed with just one worker who is responsible for early childhood nutrition, education, home visitation and copious administrative work. A study conducted by him and his colleagues in Tamil Nadu found that adding a half-time worker to the anganwadis to focus on early childhood education led to large gains in learning outcomes and reduction in childhood malnutrition and stunting. They estimate that the present discounted lifetime value of these benefits would be 13-21 times the cost of hiring extra workers. This is a massive return on investment by any standard. He argues that, we as a country, are forgoing these large returns by underinvesting in state capacity.
When we see the state functioning around us, we can see various areas where this holds. For instance, Food Corporation of India needs strategic hiring—say, logistics experts or IT specialists who could streamline operations far more than blindly cutting jobs ever would. Public hospitals are understaffed and under-resourced. The police, who provide a key function, are severely understaffed. These are just a few areas, and the list is long. Murlidharan mentions that, contrary to popular belief, India has small government—16 public employees per 1,000 people, compared to 57 in China, 77 in the US and 111 in Brazil.
Weak state capacity is a critical binding constraint on development. In India, to see policy from the binary perspective of the state or the market is not useful. It's like analysing an Indian problem with a western perspective. We neither have a well-functioning state nor market. At this stage of development, we need to strengthen both.
The liberalisation of the 1990s produced more than two decades of high growth. To sustain growth and take it even higher, difficult reforms like land, labour and urban infrastructure need to be undertaken, which won't be implemented well without adequate state capacity. It's time we bring the aspect of efficiency in the deregulation conversation, rather than simply thinking of it as an expenditure or job rationalisation.
Aasheerwad Dwivedi
Assistant Professor (economics), Faculty of Management Studies, University of Delhi
(Views are personal)